After, PNB and BoB, Oriental Bank hit by Rs390-cr loan fraud

A third loan fraud hit scam-laden Indian banking system on Friday after a diamond exporter was found using Letters of Credit (LoCs) issued by Oriental Bank of Commerce (OBC) to pay off other creditors against the purchase of gold and other precious stone and transfer gold and funds outside the country using fictitious transactions.

The new scam follows the Rs11,300-crore loan fraud by jewelers Nirav Modi and his uncle Mehul Choksi on Punjab National Bank (See: PNB reports Rs10,000-cr fraudulent transactions in its Mumbai branch)  and the Rs3,700-cr loan fraud by Vikram Kothari, owner of ball-pen maker Rotomac, on Bank of Baroda and other banks (See: CBI, ED probe Rotomac promoters for cheating 7 banks of Rs3,695 cr). 

The CBI on Friday registered a case against Delhi-based diamond jewellery exporting company Dwarka Das Seth International Pvt Ltd for the alleged defrauding OBC of Rs389.85 crore.

Dwarka Das Seth International Pvt Ltd, a Karol Bagh based company, deals with manufacturing and trading of diamond, gold and silver jewellery.

The case was registered nearly after six months after OBC filed a complaint with the central agency. The CBI has booked Sabhya Seth, Reeta Seth, Krishna Kumar Singh, Ravi Singh – directors of the firm – and named a second company, Dwarka Das Seth SEZ Incorporation, in the case.

The CBI alleged that the Karol Bagh-based jewellery exporter and other directors of two firms were allegedly cheating Oriental Bank of Commerce in connivance with bank officials and some shady financial institutions.

The main accused has been missing for over a year. The accused had availed of credit facilities between 2007 and 2012.

The modus operandi adopted by the accused was to use the bank Letters of Credit (LoC) to pay off other trade creditors against the purchase of gold and other precious stones, then transfer the gold and funds abroad using fictitious trade transactions and pay off the LoC liabilities using them.

The bank suspects that they also indulged in round-tripping of funds to increase their worth and get more credit facility.

The bank alleged that proprietor Mr. Sabhya Seth had orchestrated an elaborate plan for duping the bank. One Trade Chartered Bank has also been named for allegedly issuing LoCs without the request of foreign companies that made purchases from the accused.

As it turned out, the accused ''exporters'' were using the credit facility for discounting of bills under the LoCs established by various financial institutions, including Dubai Bank Kenya, Soleil Chartered Bank, Trade Chartered Bank, TF Bank Kontrakt and Century Bank Corp purportedly on behalf of the importers located abroad.

The process continued till the OBC noticed that these banks were poorly rated and that the exposure was getting on the higher side. Subsequently, the bank stopped release of funds and told the borrowers to ensure that the bills were drawn under LoCs of reputed banks.

However, the accused managed to get extensions without any receipt of payments from the buyers located overseas under various pretexts. They then went missing, prompting banks to move the Debt Recovery Tribunal and also got some collateral assets liquidated.

In a bid to recover the dues, the bank had also approached the buyers, including Devi Jewells, Mannat FZE and PlatDiam International, but without any success. It then found that some companies had been floated by the accused to execute the fraud. One such entity named Freya Trading Co., allegedly controlled by Mr. Seth, was shown as a major customer of Dwarka Das International with its dues standing at about Rs105.44 crore.

The bank also wrote to Al-Salam Jewellery of Dubai for clearing Rs83.28 crore in bills. However, the company said the payments had already been received by the Dwarka Das employees and that it had never got any LoC issued for the purpose.